June 7, 2024

Illinois Governor J.B. Pritzker signed into law today HB 4951 that, along with other measures, creates a refundable state Child Tax Credit (CTC). Illinois is now the 15th state in the country to offer a state Child Tax Credit. The credit will be available to taxpayers eligible for the state Earned Income Tax Credit (EITC), which is 20% of the federal EITC, that have at least one child younger than age 12 in the household. The measure will provide tax relief to hundreds of thousands of Illinois taxpayers.

For this tax year (with taxes payable next year), the new state Child Tax Credit is worth 20% of a taxpayer’s state EITC. It then increases to 40% of a taxpayer’s state EITC for each of the following years. In cases where the credit amount exceeds what an individual owes in taxes, the state will refund that amount to the taxpayers. Between reductions in tax liabilities and actual refunds, the state estimates that the state Child Tax Credit will cost Illinois $50 million this tax year and then $100 million the following year.

Illinois Child Tax Credit Amount
The actual amount of the credit received by a taxpayer will vary depending on the household income range and number of children in the household. For tax year 2023, Illinois taxpayers were eligible for the state EITC if adjusted gross income was no more than $46,560 for a single tax filer with one child and $63,398 for married filing jointly tax filers with three or more children.

Based on 2023 numbers, the maximum state Child Tax Credit would have been $160 for a household with one child and $297 for a household with three or more children. (The federal government adjusts the EITC annually for inflation, but the credit would be worth approximately double these amounts in the following tax year.) While an increase in the federal EITC, from which the state EITC is calculated, accounts for an increase in the number of children in the household up to three, it is a per taxpayer credit and not a per child credit. This is true of the new state Child Tax Credit.

More work ahead
We appreciate the creation of the state Child Tax Credit and these levels of investment in a tight budget year. Even though the rate of inflation is now significantly lower than two years ago, many Illinois families still struggle with high rents and food prices. We also appreciate the continued increases in appropriations the Fiscal Year 2025 budget makes in home visiting, the Early Childhood Block Grant, and K-12 Education.

We also recognize the federal EITC is constructed in a pyramid fashion that gets to the maximum credit level only after reaching an income level of approximately $11,750 for a single tax filer with one child and $16,500 for married filing jointly taxpayers with three or more children. After remaining constant for an income range, the maximum credit begins to decline at higher income levels (around $27,750 for married filing jointly taxpayers with three or more children). By comparison, the Economic Policy Institute estimates a household of one adult and one child needs an annual income of nearly $79,000 to meet basic household needs and maintain an adequate standard of living.

There is still more work to be done to help working families, especially the very poor. Children’s Advocates for Change and Family Focus stand ready to work with our elected officials on additional economic assistance as well as new economic opportunities for Illinois families so that all can thrive.

Illinois Governor J.B. Pritzker has proposed a Fiscal Year 2025 (FY25) budget that makes significant investments in education but is also built on gambles in wagering revenues and net losses.

The Governor proposes spending $52.7 billion in General Funds[1] for the upcoming fiscal year that starts July 1, 2024. The largest category of expenditures (20.5%) is for human services, followed by PreK-12 education, and pensions (18.9%).

With revenues higher than forecast when lawmakers passed the FY24 budget for the current fiscal year, he is also asking the legislature to approve a supplemental appropriation of $1.2 billion in General Funds[2]. The major expenditures of those funds include:

• Increased caseload pressures at the Department of Aging and the Department of Human Services,
• Outstanding bills to the Department of Innovation and Technology,
• Increased state group insurance costs, and
• An amount needed to cover delayed reimbursements by the Federal Emergency Management Agency to the Department of Healthcare and Family Services for COVID-related nursing staff support costs for hospitals.

With the supplemental appropriations, the proposed FY25 expenditures – if approved – would be 1.5% higher than FY24.

The proposed budget is built on anticipated revenues of $52.9 billion.

However, to reach that level, the Governor is proposing a set of revenue enhancement measures that total more than $1.0 billion. These measures include:

• Reinstating the Corporate Net Operating Loss Deduction for Next Three Years at $500,000 Per Year (Estimated Revenue: $526 million) State law permits a corporation with a net operating loss (NOL) in a given year to carry the loss forward to future years and deduct the amount from the corporation’s income tax liability. In 2021, the state placed an annual NOL cap of $100,000 for claimed losses. That law expires at the end of this year.  The Governor is looking to reinstate the limitation through 2027 but with a cap of $500,000.
• Capping the Retailer’s Discount at $1,000 per month (Estimated Revenue: $101 million) Illinois law permits retailers to keep 1.75% of the sales tax due on retail sales for administrative costs. With more retailers automating the processing, the Governor proposes a monthly cap of $1,000 per month to reduce the sales tax revenue lost to the state. Prior efforts to cap the discount have faced opposition from the business community and been unsuccessful (Prior to 1990, the discount was 2.1%.) A January 2023 survey by the Federation of Tax Administrators shows 27 states allow a retailer/vendor discount with 19 imposing a cap per report/year/quarter/month. The discounts and cap levels vary. Pennsylvania has a monthly cap of $25. In Michigan, the maximum discount is $20,000 if the taxpayer remits the amount due before the 12th of the month and $15,000 if the taxpayer remits the amount due between the 13th and the 20th of the month. [3]
• Increasing the sports wagering tax from 15% of adjusted gross sports wagering revenue to 35% (Estimated Revenue: $200 million in General Funds) Sports betting became legal following a 2018 U.S. Supreme Court decision and Illinois approved the Sports Wagering Act in 2019. It is one of 38 states that have legalized sports betting in some fashion.

The Illinois tax applies to adjusted gross sports wagering receipts. Revenue from Illinois’ nine licensees in 2023 totaled $142.3 million. New York has a base tax rate of 51% and Pennsylvania has a base tax rate of 36%.

In a review of the proposal, JMP Securities analyst Jordan Bender wrote that “the effective tax rate increasing in Illinois will hurt smaller operators, and allow larger companies like DraftKings, FanDuel, and BetMGM to gain market share and help offset the tax losses.”[4]|

•  Transferring $175 million in mass transit costs from sales tax revenue to Road Fund.

If lawmakers decide not to act upon the proposed revenue measures, they will either need to find other revenue sources to pay for proposed expenditures ( whether that is increasing the state income tax rates, expanding the sales tax base, or curtailing existing corporate incentives) or reduce appropriation line items. However, it seems unlikely that the General Assembly would increase the individual income tax rate or significantly expand the sales tax base or rate prior to a general election. CAFC takes a further look at additional revenue needs later in this blog post.

Other tax items

There are two other tax items noted by the Governor in his budget address with one impacting the proposed budget and the other impacting local governments versus the state.

Child Tax Credit
The Governor has proposed a state refundable Child Tax Credit (CTC) for children under the age of 3 in households receiving a state Earned Income Tax Credit. The proposed credit would be worth 20 percent of the state EITC received by a taxpayer and cost the state a total of $12 million annually.

Children’s Advocates for Change is encouraged by the fact that the Governor noted the positive impact the credit can have for families. Studies have shown economic supports, such as a CTC, can improve children’s health, educational attainment, and even future earnings. CAFC (and others) is supporting legislation to create a $300 per child credit for most families below the state household median income. The estimated initial cost to the state for the credit would be approximately $300 million annually.  However, because recipients are likely to be spending most of the credit value on needed goods and services, the state would recoup a portion of the spent credit in sales and income tax revenue.

Furthermore, the 2022 American Community Survey puts the number of Illinois children in poverty at nearly 425,000. The Governor’s proposal, aimed only at children under the age of 3, would only impact approximately 71,400 children. CAFC looks forward to conversations with the Governor’s Office and legislators about creating a robust CTC.

Eliminating the Sales Tax on Groceries
Governor Pritzker is also proposing to eliminate the 1% state sales tax on grocery food items. According to the Governor’s Office, this would account for approximately $325 million. The state distributes that revenue to local governments.

According to the Center on Budget and Policy Priorities, Illinois is one of only a dozen states that as of last fall taxed groceries.[5] The state suspended the tax from July 1, 2022, through June 30, 2023, to help families deal with higher grocery prices during a time of high inflation. In his budget address, the Governor stated:

For the good of our state’s working families, let’s permanently eliminate the grocery tax! It’s one more regressive tax we just don’t need. If it reduces inflation for families from 4% to 3%, even if it only puts a few hundred bucks back in families’ pockets, it’s the right thing to do.

In addition to the state sales tax on groceries, residents within the boundaries of the Regional Transportation Authority or Metro-East Mass Transit District face a local tax on grocery food items. If legislation to eliminate the state sales tax on grocery food items follows the 2022 suspension, it would not impact these local taxes.

The Illinois Municipal League has expressed its opposition to the proposal. Among other communities, it estimates the revenue loss to the City of Chicago could be $60-80 million dollars and $3.8 million for the City of Springfield.

While most facets of state government, from mass transit to additional reimbursements to safety net hospitals, may impact children and families, CAFC has taken a look at some of the major agencies, programs and services that directly serve children and families. During the next several months, CAFC will continue to dig deeper into proposed program funding from the listed line items in the Governor’s budget.

Education

Pre-Kindergarten (PreK)
Last year, the Governor proposed (and with legislative approval the state embarked on) the first of a proposed four-year program called Smart Start. The major focus of Smart Start is to eliminate early childhood care and education deserts for three- and four-year olds by 2027. This includes additional investments in the Early Childhood Block Grant (which funds PreK programs such as Prevention Initiative [for children 0-3 years of age], Preschool for All [for children ages 3-5], and Preschool for All Expansion – the all-day PreK program), Early Intervention Program, Home Visiting, and child care (to increase access and staff salaries).

The Governor ‘s proposed FY25 budget calls for a $75 million increase for the Early Childhood Block Grant, which brings the total funding for the Block Grant to $748 million. According to he Governor’s Office of Management and Budget (GOMB), last year’s investment of an additional $75 million created addition of 5,886 new preschool seats in preschool deserts—areas of the state with too few publicly funded preschool seats to serve 80% of low-income 3- and 4-year-olds in the area.[6] This year’s request is designed to create 5,000 additional PreK slots in child care deserts.

One of the recommendations in a 2021 report by the Illinois Commission on Equitable Early Childhood Education and Care Funding was to consolidate early childhood programs into a new agency. Currently, programs impacting early childhood and care are spread across the State Board of Education, Department of Human Services, and Department of Children and Family Services. This proposed budget includes $13 million for the creation of a new Department of Early Childhood to hire initial personnel and build the technical infrastructure to get the agency off the ground. The legislature will need to pass enabling legislation to create the agency. The state would not relocate programs with the State Board and existing departments until 2026.

K-12 Education
In his address before the General Assembly, Governor Pritzker emphasized the importance of maintaining robust public investment in K-12 education. He proposed numerous increases in the State Board of Education’s budget, but some important line items remain flat from last year’s budget.

The overall state K-12 education budget is $10.8 billion, which accounts for approximately 20% of the overall state general revenue budget. The item that sees the biggest dollar increase in the education budget is for Evidence-Based Funding (EBF). Since 2017, this has been the main state funding source for K-12 education in Illinois. For Fiscal Year 2025, the Governor proposes increasing Evidence-Based Funding for K-12 schools by $350 million, bringing the overall Evidence-Based Funding level to $8.6 billion. When revisions occurred to the EBF formula in 2017, the state pledged to add $350 million additional dollars to the formula for each of the next ten years (for a total of $3.5 billion in new dollars) to reduce inequities in school funding across the state and see that every school district reaches an “adequate” level of funding for educating a child.

While this proposal meets the statutory recommendation of the Evidence-Based Funding reform law, it may not meet the current needs of public schools in Illinois. With the effects of normal inflation and the higher-than-normal inflation of the past two years, $350 million in today’s money is no longer worth as much as $350 million in 2017 dollars. The result of this is many districts are not seeing the level of increases needed to reach full, adequate funding. School funding advocates are asking the state to increase the EBF formula by $550 million.[7] CPS is currently facing a projected budget deficit of $391 million. Without increased state investment, CPS will need to fill in its deficit through either spending cuts, which takes much needed resources out of schools, or through local taxes.

The Governor proposed an increase of $789 million for various aspects of special education in Illinois. This is a $30 million increase over the FY24 funding level. The Governor also called for a $10.8 million increase in Career & Technical Education, which would bring the total CTE funding to $58 million.

Not every item in the state education budget proposal saw an increase for FY 25. State funding for After School Programs remains at $35 million, the same as last fiscal year. The Teacher Vacancy Pilot Program, which aims to train and place teachers into low and middle-income school districts, maintains its funding level of $45 million from last year. The state’s Free Breakfast & Lunch reimbursement program also remains at last year’s funding level, $9 million.

Higher Education
The higher education budget sees small increases meant to keep pace with the normal rising of costs. The state’s public universities see a small 2% increase from last year’s funding levels. In total, universities see funding levels rise to $1.3 billion in the proposed FY 25 budget.

Community colleges in Illinois also see a small 3% increase from FY 24 funding levels.

The state’s Monetary Award Program (MAP), which provides tuition support for low- and middle-income college students in Illinois, sees a small $10 million increase in the proposed budget. This brings the total MAP funding for FY 25 to $711 million. This is estimated to provide tuition assistance to 144,000 college students in Illinois.

A promising trend in the last decade is the continuing increase of the maximum available award for MAP grantees. In the 2013-2014 academic year, the effective maximum award amount was $4,720. In the 2023-2024 academic year, that amount is $8,400, a nearly 78% increase.[8] This has led to more purchasing power for MAP grantees. In the 2013-2014 academic year, the maximum MAP grant award covered 37% of tuition and fees for 4-year universities and 44% for 2-year colleges. In 2023-2024, the maximum MAP grant award covers 50% of 4-year university tuition and 61% of 2-year college tuition.[9] By leveling off investments in both MAP grant funding and university funding, the state faces the danger of stalling progress on raising the purchasing power of the MAP grant.

Human Services

Department of Human Services

Child Care
Another component of the Governor’s Smart Start Program is improving access to and the quality of child care in the state. However, the workforce needs to be in place to do that. Among the goals of the Smart Start Program is increasing funding to child care providers to raise wages for workers. The current FY24 budget contains $100 million for Child Care Workforce Compensation contracts (made possible by COVID-19 federal relief funds) to increase the pay of child care workers and stabilize the operations of providers.

The proposed budget contains $122 million for Smart Start investments. Of that total:

• $110 million in General Funds is for Workforce Grants (with appropriation authority for an additional $40 million in federal funds)
• $10 million in General Funds is for Quality Support Contracts, which are designed to increase wages based on staff credentials, hire additional staff support, and provide professional staff development[10] and
• $2 million is for the Early Childhood Apprentice Program, which is designed to connect students in credentialed programs with childcare centers in targeted communities where they receive training and mentoring from personnel.

There is a $36.5 million increase in the Child Care Assistance Program to handle caseload growth. Furthermore, there is additional appropriation authority for anticipated federal funds to help cover caseload growth. A supplemental appropriation request of $30 million is allocated to restore funds for the Child Care Assistance Program that were shifted under executive authority as part of a $160 million package to support services for asylum seekers during the current fiscal year.

The budget also contains $1 million for a low-income diaper program. The budget does not contain details of how the state would administer the program.  Sen. Lakesia Collins has introduced SB 3162 that sets a monthly diaper allowance of $70 for eligible children whose family income is at or below 100% of the federal poverty guidelines.

EI and Home Visiting
The proposed FY25 budget also includes an additional $6 million in General Revenue for the Early Intervention Program and an additional $5 million for the Home Visiting Program (including Parents Too Soon and the Healthy Families Program). The Early Intervention (EI) Program is designed to evaluate infants and toddlers to determine if a child has any developmental delays or disabilities. The EI Program had a significant increase in the FY24 budget ($40 million) to increase provider rates by 10% and accommodate growing caseloads. Early Intervention advocates are seeking a $40 million increase in FY25 and another rate increase to, in part, address what they say is a shrinking workforce.

Asylum Seekers
Since 2022, Chicago has seen more than 36,000 asylum seekers arrive from Texas.[11] Last November, Governor Pritzker announced the state would provide $160 million in resettlement services. The Governor’s office has stated that this amount is on top of $478 million in state funding provided in fiscal years 2023 and 2024 for shelter, food, medical care, rental assistance, and casework services.[12]

The proposed FY25 budget contains an additional $49.4 million in General Funds (for a total of $139.4 million), and an additional $1.3 million in funds from the federal American Rescue Plan, for Welcoming Centers (essentially one-stop centers to coordinate human services for immigrants and refugees). Although, there is a $10 million decrease in funding for the centers from the DHS State Projects Fund.

According to a Department budget presentation, $67.3 million of the $250.3 million line item appropriation for Home Illinois (a state program coordinating homeless prevention services) will go to support housing needs for new arrivals. The proposed Home Illinois budget is $50 million higher than the FY24 appropriation. Of that $50 million increase, $13 million is designated to implement recommendations of the Racial Equity Roundtable designed examine the root causes of housing insecurity for Black Illinoisans.[13]

Proposed FY25 funding for a number of other programs serving youth (such as the Youth Employment Program, Redeploy Illinois, Homeless Youth Services, and After School Youth Programs) is level compared to FY24.

Department of Children and Family Services

Within the proposed DCFS budget is funding (both as a FY24 supplemental request and FY25 proposed appropriations) to hire an additional 392 individuals to help with DCFS caseloads. For three decades, DCFS has been under a consent decree to ensure the Department provided adequate services to youth, that children are placed in the most family like setting possible, and that (under the last amendment to the decree) the agency maintain enough staff to so there is a maximum of 10 cases per child abuse and neglect investigator. Data from the Department itself shows the number of investigations has increased by more than 15,000 since FY20 and is projected to continue to increase in FY25.

The Department budget also:

• Increases funding by $38.9 million for its Comprehensive Child Welfare Information System designed to provide a unified case management system for all DCFS child welfare data and allow for faster case processing,
• Provides $4.3 million to acquire body cameras and weapons detection equipment designed to help protect DCFS workers[14],
• Includes $5.8 million to enhance security for private sector providers, and
• Increases the Foster Homes line item by $19 million to help unlicensed relative caregivers become licensed caregivers.

Along with the proposed FY25 General Funds Operations Budget, the Governor has also proposed a separate capital program. This program contains $100 million for capital grants to providers to increase capacity for youth placement in the most clinically appropriate setting.

Department of Healthcare and Family Services

The largest portion of the HFS budget is for medical assistance ($26.8 billion for FY25 – which represents a $14.2 million increase). What is often not recognized is that the state provides medical assistance to 1.5 million of the state’s 2.7 million children.

Health Care for Non-Medicaid Eligible Residents
For a number of years, Illinois has covered health care for undocumented residents up to 18 years old under its All-Kids insurance program. In 2020, the state began a program to cover undocumented seniors and then expanded it to cover individuals 42-64 years old. At the beginning of 2023, the Governor’s office projected the cost of the program would be around $220 million. Several months later, the administration put operation of the program at $1.1 billion. In the end, the legislature appropriated $550 million and gave the administration authority to halt or cap enrollment in the program. The state capped enrollment for the program serving seniors at 16,500 and on July 1, 2023, halted enrollment in the other program.

The proposed FY25 budget contains $629 million for the Health Benefits for Immigrant Seniors and Health Benefits for Immigrant Adults programs (for individuals  aged 42 or older who do not qualify for Medicaid due to immigration status) of which $440 million is GRF and $189 million other revenue sources.

Medical Debt Relief
The HFS budget also includes $10 million to purchase private medical debt of Illinois residents from debt collection agencies at a significant discount with the intention to then have those debts forgiven. The administration believes the measure will potentially provide $1 billion in medical debt relief for at least 300,000 low-income residents.

HFS is now required to pass through all child support to families receiving Temporary Assistance for Needy Families. The proposed FY25 budget includes an increase of $20.6 million in General Funds to address this provision.

Department of Public Health

The Department’s budget includes $4 million in new state funding to address maternal health disparities. According to DPH, Black Illinois women are twice as likely to die from any pregnancy-related condition and three times as likely to die from pregnancy-related medical conditions as white Illinois women.[15] Of the $4 million, the Governor’s budget indicates $2.5 million will go to the creation of an action plan that includes a reproductive health care asset inventory focused on community-based providers and $1.5 million will go to birth equity resource grants that include covering costs associated with opening community based birth centers.

What’s Not in the Budget or Wasn’t Mentioned in the Budget Address
While advocates for different causes may see additional funding for some of the items noted in this post, the budget does not directly address two large looming fiscal issues.

• As noted earlier, the Chicago Public Schools project a $391 million budget shortfall as it spends down remaining COVID-relief dollars it has received.
• The Chicago region’s transportation system is facing a potential $730 million shortfall in 2025 as federal COVID-related funding expires.[16] The Chicago Metropolitan Agency for Planning has looked at potential revenue options:

In addition to providing needed economic resources to working families, a more robust state Child Tax Credit than what the Governor proposed would also help make a very regressive state and local tax system (where the lowest income households pay more than twice of their income in taxes than the top 1% of income households) more progressive. When you factor in median household incomes by race and ethnicity, the tax system tax system that puts a greater burden, on average, on Black and Latinx households than white/non-Latinx households. Only a state constitutional amendment would allow the state to provide different individual income tax rates by income.

Combined with future funding that would be needed to maintain the pledged funding for the Evidence-Based Funding formula for Illinois schools plus funding for the planned next two years of Smart Start, Illinois needs to find additional revenue sources beyond what the Governor has proposed as part of this budget.

The legislature’s scheduled adjournment date is May 24^th. Whether it is before that date, and before a general election in November, or after those dates, Illinois needs to re-examine both its income tax structure and sales tax structure so that it has adequate revenue to reduce inequities and provide opportunities for every child and his or her family.

Written By John Gordon and Mitch Lifson

 

[1] General Funds represent the General Revenue Fund, the Common School Fund, the Education Assistance Fund, the General Revenue-Common School Special Account Fund, the Fund for the Advancement of Education, the Commitment to Human Services Fund, and the Budget Stabilization Fund. They provide the greatest flexibility in terms of appropriations by lawmakers. There are specific state and federal funds that by law can only be used for only specific purposes (i.e. federal highway funds). When added together, the proposed operations for FY25 total $123.3 billion. There is also a separate capital budget.

[2] According to the Governor’s Office of Management and Budget, available FY24 revenue was higher than the estimate in the approved FY24 budget due to a “a larger than anticipated transfer in from the Income Tax Refund Fund, higher returns on investment income, and a retroactive draw of federal Medicaid matching dollars”. (From Proposed FY25 Budget)

[3] https://www.avalara.com/blog/en/north-america/2021/10/vendor-discounts-for-filing-sales-tax-on-time.html

[4] https://www.covers.com/industry/illinois-tax-hike-sports-betting-effects-smaller-february-2024

[5] https://www.cbpp.org/12-states-impose-sales-tax-on-groceries

[6] https://gov.illinois.gov/news/press-release.29519.html

[7] https://www.chalkbeat.org/chicago/2024/01/25/illinois-education-budget-proposal-is-less-than-what-advocates-want/

[8] Illinois Student Assistance Commission: Basic ISAC Program Data 2023

[9] Illinois State Board of Education: Evidence-Based Funding Distribution Calculator; ISBE State Report Card.

[10] https://www.ilgateways.com/docman-docs/smart-start/3555-smart-start-faq/file

[11] City of Chicago Figures as of 2/29/24: https://www.chicago.gov/city/en/sites/texas-new-arrivals/home/Dashboard.html

[12] https://gov.illinois.gov/news/press-release.29453.html

[13] The Racial Equity Roundtable on Black Homelessness convened in February 2023. The University of Illinois at Chicago, Institute for Research on Race & Public Policy completed a qualitative and quantitative analysis on the Black-White disparities in homelessness. A release of a report on the work was expected in February 2024. (Home Illinois 2023 Annual Report)

[14] In 2022, a child protection specialist with the Department of Children and Family Services was stabbed to death while performing a home visit.

[15] https://dph.illinois.gov/resource-center/news/2023/october/idph-releases-third-edition-of-maternal-morbidity-and-mortality-.html

[16] https://www.cmap.illinois.gov/documents/10180/1523087/Plan+of+Action+for+Regional+Transit_Dec2023.pdf/6d674674-ccb4-0bcf-4907-7d7d389bb650?t=1701802264175